A 'Sunk Cost' is a cost that has already been incurred and cannot be recovered, and according to rational economic theory, it should heavily influence future decision-making and marginal analysis.

Rational economic theory dictates that sunk costs are entirely irrelevant to future decisions because they cannot be changed regardless of what action is taken next. Decisions should be based solely on marginal costs and marginal benefits going forward. The 'Sunk Cost Fallacy' occurs when individuals or firms irrationally continue a failing project simply because they have already invested heavily in it.